Boeing Tumbles as Oppenheimer Cuts on Optimism-Obscured Challenges

By Ben Levisohn

Boeing’s (BA) shares have been flying high this year, as expectations build for the success of its new planes. But many of those jets won’t arrive for a number of years and if attention turns to the here and now, watch out. That could be a recipe for undeperformance, Oppenheimer says.

Reuters

How bad could the situation get? Oppenheimer’s Yair Reiner and William Lee explain:

We’re downgrading Boeing to Perform from Outperform and removing our $140 PT, which has been substantially achieved. While we still see Boeing’s FCF improving over the next two years, we believe investors are overlooking how a convergence of factors are aligning to make 2015 a medium-term peak….

One catalyst for Boeing’s recent surge has been the apparent success of its 777x–but it comes with a downside. Reiner and Lee explain:

The launch of the 777x appears to have left the 777 program, which accounts for an estimated quarter of BA’s total profit, in the lurch. The 777 needs to hold down the fort for 6-7 years until the 777x enters into service, but currently has only 3.3years of backlog.

Not only is this unfilled order bridge much bigger than anything faced by the 737ng or A320, the 777 enters its last lap with waning order momentum, sporting a YTD B:B <0.5.x and a grand total of zero bridging orders from this month’s 777x launch. We see 777 production 35% lower a few years out.

Investors have also been willing to overlook the dismal performance of Boeing’s defense business, which competes with the likes of Embraer (ERJ), Lockheed Martin (LMT) and Northrop Grumman (NOC). They shouldn’t, Reiner and Lee say:

For better or worse, investors have tended to look past the performance of
Boeing’s defense business. That may be increasingly difficult to do going forward, especially at the military aircraft division. The C-17, F-18, V-22, and F-15, which together comprise about half of BMA revenue, seem likely to shrink substantially by 2016.

Shares of Boeing have fallen 2.1% to $134.10 at 10:12 a.m., while Embraer has dropped 0.5% to $31.08, Lockheed Martin has declined 0.5% to $138.33 and Northrop Grumman has dipped 0.4% to $109.83.

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NOVEMBER 20, 2013 5:33 P.M.

John Salisbury, Esq (ret.) wrote:

when a stock is advertised at it's high beware - that's just so the big positions can be unloaded. Same with Cisco in 2000 at 80 down to 30 in one year - a reverse split held by who? the middle class investor. Then it went down again by 50% and down another 50% to about $7 dollars then crept for 10 years back to the 20s. The big guys bailed in 2000. Apple too. Never an error selling at a high.

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Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.